Did you feel the chill in the air this week as the fog descended and fall made its presence known? BRRR . . .
I pulled out a heavy black overcoat and threw it on prior to heading out my door to the Educate Our State luncheon in San Francisco, where I anticipated the weather would be colder still (it was). That dusty coat has been idly sitting at the back of my closet for months, thanks to our glorious California sunshine and fantastic autumn temperatures. (Hey, it's already snowing in other parts of the country. Give thanks.)
Here's the thing, I'm a gal who's all about the pockets and whenever I put on a jacket, I usually find a nice surprise (or two) tucked away, that has been long forgotten. On Wednesday, it was a handyman's business card (always useful), a fabulous lipstick (ohhh-la-la), and a twenty dollar bill. Eureka!
"Candy-coated popcorn, peanuts and a prize . . . that's what you get in Cracker Jacks".
Don't you love these kind of surprises? (Yes, I do.)
On the other hand, there are those kind of surprises that are far less welcome. Fortunately, with respect to Real Estate, many of these "glitches," such as poor inspections or ambiguous easements, can be somewhat anticipated AND corrected before they turn into ugly negotiating issues down the road. (Don't wait for the Buyer to conduct inspections once in contract. Do these pro-actively!)
However, some surprises aren't so quickly accommodated or rectified. This week, Brady Thomas, of LaSalle Financial, popped by The GRUBB Co's Tuesday morning office meeting to give us a little POP QUIZ on personal credit scores, the significance of them to you - the borrower - and how they are established and managed over time . . .
(Think of them as your own personal, grown-up SAT'S!)
- A full 35% of your credit score is established through your PAYMENT HISTORY - Not your debt and NOT your income. In other words, how promptly you pay your bills each month is the MOST important factor for establishing good credit.
- Your debt carried forward is the next most important criteria for determining one's credit score. This factor makes up 30% of the score and just to keep things simple, 30% is the allowable debt ratio that one may carry forward month-to-month as well. This doesn't mean one's TOTAL, overall debt, but the balance of each line, individually. (Feel better?) Not surprisingly, lenders prefer to see manageable debt - not maxed out credit cards. (Car loans, *student loans, and mortgage loans don't apply to this equation, which falls under a different category.)
- The length of your credit makes up 15% of your credit score. It's why mortgage brokers advise you to hold onto rarely used, dormant accounts, as opposed to canceling them altogether. (I haven't stepped foot in a Bloomingdale's for years.) Just securely tuck the cards away and ignore them. On the other hand, if you live in a largely "All Cash" world (as many people do who are less familiar with the concept of living beyond their means?!?) you unfortunately, won't have established enough credit to actually qualify for a loan - even with a fair amount of savings in the bank. (Yes, it makes no sense, but there you have it.) Open a VISA and pay it down completely each month. You'll need at least three months of established credit history to qualify for a loan.
- 10% of your Credit Score is based on the "types of credit" you carry (Visa and AMX cards carry more weight than The GAP card for example - no offense to The GAP; I love Athleta.)
- And finally, the last 10% of your credit score is based on recent inquiries (yes, each "pull" of your credit score dings you ever so slightly, but not as much as you might think). If you don't comparison shop your mortgage lender beyond a rate comparison, you should be fine.
*It's important to note that if you have any outstanding Student Loans, that debt stays on your credit history FOREVER (!) - even if you have declared bankruptcy in the past. In short, if you have paid to play, you'll get NO free pass from the Federal Government - it's time to pay.
And for those of you just wondering: a "Perfect Credit Score" is 840 points; 760 is considered "excellent;" 720 is "on par;" a score below 700 becomes much more difficult and costly to the borrower; and lastly, a score below 640 doesn't stand a chance of finding legitimate funds anywhere in the banking world. (How's your relationship with with your mother?)
So there you have it. Your Credit Score might not be the most exciting topic on which I've ever spoken, but it's likely to have the biggest impact on your ability to borrow throughout your lifetime. Protect your credit score, nurture it, and honor it, the way you would your children. On second thought, protect your credit history MORE; your children will have to find their own way eventually. In fact, maybe it's time for them to establish their own credit and get on with it.
Now where'd I put that twenty dollar bill? I'm going to need it to pay for parking in SF . . .